Palomar’s new Torrey Pines cat bond sees considerable price rise

The latest catastrophe bond from Palomar Insurance Holdings, the speciality California-headquartered insurer that provides largely catastrophe exposed property products, has had its pricing hiked considerably, with the coupons for both tranches of the still $300 million target Torrey Pines Re Ltd. (Series 2022-1) deal rising well above their initial guidance.

It’s a reflection of the widening spread environment we’re seeing in the catastrophe bond market at this time, where investors are demanding higher returns and capital availability is not always matched to the still buoyant flow of issuance.

Palomar returned to the catastrophe bond market around the middle of April, seeking $300 million or more of US earthquake reinsurance protection with a Torrey Pines Re 2022-1 cat bond issuance

Torrey Pines Re Ltd. is still aiming to issue two tranches of notes to secure now up to $300 million of indemnity and per-occurrence structured collateralized US earthquake reinsurance for Palomar Specialty Insurance Company, that will run across a three-year term.

Sources have told us that the issuance is now likely to settle to provide Palomar between $250 million and $300 million of reinsurance now, while pricing has risen considerably for this deal.

The Class A tranche of notes, which were preliminarily sized at $175 million, are now targeted at between that amount and $200 million.

The Class A notes will have an initial expected loss of 1.23% and were first offered to cat bond investors with price guidance in a range from 3.35% to 3.85%.

But we’re now told the Class A notes spread guidance has been elevated, to 5%, which is a roughly 39% rise from the initial guidance mid-point.

Meanwhile, what was targeted as a $125 million or larger Class B tranche of notes, is now targeting from $75 million to $100 million of reinsurance for Palomar.

The riskier Class B notes will have an initial expected loss of 3.77% and were first marketed to investors with price guidance in a range from 6.5% to 7%.

For this Class B tranche, we’re now told the coupon has been elevated as well, to 8.25%, which represents a 22% increase from the mid-point of initial guidance.

These are significant increases in price for a cat bond while it is being marketed, but reflective of the investor demand for higher multiples-at-market for new catastrophe bond issues.

While the original multiples already looked higher than Palomar’s previous $400 million Torrey Pines Re Pte. Ltd. (Series 2021-1) US earthquake only cat bond transaction, with the increases they are now significantly higher, reflecting reinsurance market hardening as we move towards the mid-year renewals.

You can read all about this Torrey Pines Re Ltd. (Series 2022-1) catastrophe bond and every deal issued since 1996 in the Artemis Deal Directory.